US economy: The big reality check every trader needs to read

US GDP growth is up, unemployment is low, and consumer spending remains strong. In financial media, America gives off an optimistic vibe, which is far from factual.

Here’s a reality check on the US economy so traders can recognize the misleading information seeding Western financial media and trade more informed.

The mainstream narrative

Switch on any of the financial news channels from the US and you’ll hear lots of positive stories and reports. After all, data releases don’t lie… right?

There are three positive indicators are getting thrown around by almost every financial blog and news feed, but how much of it is impactful is something we will explore shortly. Let's see why the US economy is said to be all sunshine and rainbows.

1. GDP growth: The second quarter of 2024 saw an optimistic rebound with a 2.8% annualized GDP growth rate, showcasing a strong economic recovery.
2. Robust consumer spending: Consumer spending has been resilient, contributing significantly to GDP growth.
3. Low unemployment: Official unemployment figures remain low, suggesting a healthy labor market with ample job opportunities.

Let’s look at these optimistic claims with an unrestricted approach.

Reality check on the US economy

The US GDP includes a good deal of metrics, but there are a few things the media avoid mentioning on TV. For example, consumer spending is a part of GDP growth. When spending goes up, the GDP figure rises too. But when inflation rises, so do prices, and consequently spending.

Consumer spending accounts for 68% or more of the GDP figure. So high inflation raises the GDP figure significantly. In today’s economic climate with desperate strategies overlapping, GDP is a misleading indicator of economic strength.

It gets worse.

As of the second quarter of 2024, the US is grappling with a record-high total household debt of $17.8 trillion, indicating a concerning trend in personal borrowing. Credit card balances have surged to $1.14 trillion, reflecting a 5.8% year-over-year increase, while mortgage debt remains the largest component at $12.52 trillion.

Auto loan and student loan balances also contribute significantly to the overall debt burden, reaching $1.63 trillion and $1.59 trillion, respectively.

There’s even more. GDP also incorporates government spending. The US gave $40 billion in military aid to Ukraine. That’s not money, that’s tanks and rockets. Send old and obsolete weapons to a foreign country and add the dollar value of $40 billion to the GDP. Again, another manipulation of GDP optimism. But internal spending issues are not the only challenge that the US faces.

Trade struggles for the US on the horizon

Escalating geopolitical tensions are not good for any country. As USD is still the world reserve currency, the US is more susceptible than any other country. In addtition, US trade bans and tariffs of the past have hurt America on multiple occasions.

Add BRICS to the mix–a group of nations dedicated to enabling international trade without US influence. Now add mBridge, an alternative payment system based on blockchain technology, perfect for international trade.

All that put together doesn’t paint a pretty picture. No wonder nations are quietly turning their back on the US, sneaking to China under the guise of peace talks. 

But why is America in this situation? It could be because the US has been bullying and manipulating its allies since Nixon broke the US promise to pin USD to gold in 1971. In reality, there are many reasons to distance from the US economy, but the biggest one is debt.

The $35 trillion mountain too high

The US national debt is the most overlooked issue when media reports on the strength of the US economy. After World War II, America became the reserve currency that facilitated international trade. USD was acquired by multiple nations with the promise that the exchange rate would be tied to gold prices.

But after Nixon placed the US economy over the validity of the Brent Woods agreement, America became that pushy friend that borrows money but never repays it.

Let’s simplify everything for a moment to demonstrate how absurd this oversight/restriction is.

Imagine a guy stepping out of a big house and getting into an expensive car. From his neighbor's perspective, he seems economically optimistic.

Now consider that he has a massive variable mortgage running out of control and rising car payments that combined equal or exceed his income, so he’s paying the monthly bills with a credit card. That’s an oversimplification of America, but it frames the premise nicely.

The US, in this current fiscal year, is in a deficit of $1.5 trillion. That means the country earned less than its accumulated costs… by a lot. The debt accounts for $1 trillion in costs, so even if the US defaulted on debt, it’s still short of net zero.

And now, the world finally has an escape from the dominance of the so-called reserve currency, and they are slowly sneaking out, hoping not to provoke a debt default.

Nations know the US will only increase this debt and never repay it, which makes USD a ticking time bomb that every treasury, trader, and central bank should.

America knows all this, and it is hurriedly trying to become a self-sufficient nation. From oil fracking to domestic chip production, America is getting ready for international cold shoulders and disbanded alliances.

Conclusion

Sentiment is a powerful agent of the financial world, and it is the job of the Fed and the US media to avoid creating a mass panic. As long as the global sentiment stays optimistic, the US will continue to accumulate more debt as it dangles at the edge of the economic ledge.

When market sentiment finally aligns with the true economic realities of the US (and many other nations), a chain reaction might trigger the next recession. Be ready for that.

Until then, you will continue to see cherry-picked information on the news that has no real value for you, other than learning what the US wants everyone to know.

Those media reports and data announcements might be bogus and the books might be cooked, but they still influence sentiment for those traders not digging deeper, so you might still buy the rumor and sell the news for the near short-term.